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Business groups sounding out the alarm on the debt limit

Financial Services Forum President and CEO Rob Nichols said that hitting the debt ceiling “would bring upon us significant economic damage” and generally, the country defaulting on its debt should be “taken off the table.”

But when it comes to the fiscal cliff debate, “it is going to be up to those who are negotiating to arrive at their terms,” Nichols said.” I don’t think it’s helpful for business groups to be prescriptive on negotiation rules and what should and shouldn’t be a part of it.”

“The 2011 debt limit negotiations were a defining moment for us,” said Aric Newhouse, senior vice president for policy and government relations at the National Association of Manufacturers. “Manufacturers don’t want to see a repeat of a process that could lead to another downgrade.”

The Business Roundtable has advocated for a cliff deal that would address the debt limit. And U.S. Chamber of Commerce government affairs executive vice president Bruce Josten has said it makes sense to address the debt limit while negotiating fiscal cliff spending issues since they’re related.

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Can we please stop this “risk of default” nonsense? The United States is not going to default on anything. That was never a possibility last time around, and it’s not a possibility this time. What will happen if we hit the debt ceiling is that OTHER things will have to be cut, like federal spending that is not on the debt. And that is not a bad thing.

While it would be amusing as all get out were the US to actually default on its financial obligations — the bulk of which are owned by Social Security, the Fed, and the Chinese — that isn’t what would happen if the debt ceiling is reached.

Instead, we’d retain $16T+ of debt and merely have to dramatically slash government spending to the amount of current revenues each day — which would entail a roughly 40% cut. It would have been much less of a cut had it been done before Obama heaped another $6T in debt on the pile, but that’s what we’re looking at today.

The US has about 330M people, and $16T in debt. To put this another way, that’s about $54,000 per person — which is what the government has promised to extract from everyone in taxes to pay that debt. If, instead, it were actually defaulted and repudiated, each citizen would no longer have to bear the burden of hauling around $54,000 of obligations accruing interest for the rest of his or her life. And, since the major debt-holders are Social Security, the Fed, and China…..you’d merely see Social Security become “pay-as-you-go” [which it almost is today], the Fed implode, and the Chinese have their feelings hurt. I suspect I know what Andrew Jackson would think about that — being that he intentionally imploded the Second National Bank of the United States for various irresponsible behaviors.